Upon emergence from bankruptcy, the Company qualified for and adopted fresh start accounting in accordance with ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes because (1) the holders of the then existing common shares of the Predecessor received less than 50 percent of the new shares of common stock of the Successor outstanding upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims. The Company elected to apply fresh start accounting using a convenience date of October 31, 2021. Management evaluated and concluded that the events on November 1, 2021 were not material to the Company’s financial reporting on both a quantitative and qualitative basis.

The reorganization value derived from the range of equity values associated with the Plan was allocated to the Company’s identifiable tangible and intangible assets and liabilities based on their fair values. The Effective Date fair values of the Company’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets.

Under ASC 852, the Successor determined a value to be assigned to the equity of the emerging entity as of the date of adoption of fresh start accounting. Based on the Company’s revised projections filed with the SEC on a Form 8-K on May 6, 2021, management and its investment bankers reassessed the value of the Company, resulting in an estimated range of shareholders’ equity between $50,000 and $550,000. The Company engaged third-party valuation advisors to assist the Company in their determination of a point estimate of equity value within the range.

Management concluded that the best point estimate of shareholders’ equity was $547,448, which resulted in $553,535 of total equity, including noncontrolling interest in the Operating Partnership. The Company engaged valuation experts to assist management in the allocation of such enterprise value to the assets and liabilities for financial reporting purposes. The Company estimated enterprise value using a discounted cash flow approach. In order to estimate enterprise value, the Company estimated cash flows over a five-year period plus a residual value calculated using a capitalization rate of 10% applied to the residual period cash flows, all of which were discounted to an estimated present value using the Company’s estimated weighted average cost of capital of 11%. The estimated future cash flows were based on financial projections utilized by the Company’s investment bankers in deriving the range of equity value. The fair value of mortgage and other indebtedness and the 10% senior secured notes were subtracted from and the balance of cash, cash equivalents and restricted cash was added to enterprise value to determine equity value. The fair value of mortgage and other indebtedness was estimated based on an analysis of collateral coverage, financial metrics and interest rate for each mortgage note payable relative to market rates (see below for a more detailed description). The most subjective and judgmental assumptions used in the determination of enterprise and equity value include the Company’s projected cash flows (projected revenues, operating expenses, capital expenditures and cash flows), capitalization and discount rates, and market interest rates for mortgage note payable obligations.

The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in the Company’s projections, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the financial projections, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond the Company’s control. Accordingly, the Company cannot assure that the estimates, assumptions, valuations or financial projections will be realized and actual results could vary materially.

In developing the fair value estimates for the portfolio of retail properties, all three traditional approaches to valuation were considered including the income approach, the sales comparison (market) approach and the cost approach. These valuation approaches have long been recognized as acceptable in the appropriate circumstances and in valuations of this type. Accordingly, all applicable properties were identified, investigated and examined by the valuation provider along with all intangible assets and liabilities associated with the properties. Furthermore, the valuation provider estimated the fair values and remaining useful lives ("RUL") of the related intangible assets and liabilities at the property-level, as applicable. In most cases, the properties included the following intangible assets/liabilities:

For the valuation of the tangible assets of each property, all pertinent information such as blueprints and drawings, property tax statements, prior appraisals and cost segregation reports were utilized. In terms of methodology, the properties were valued via the income approach in order to estimate building values. Separate values for the underlying land and site improvements were developed via the cost approach. As part of the allocation process, the fair value of the following tangible components was estimated:

The fair value of the Company’s investment in unconsolidated affiliates for fresh start accounting was determined by valuing the underlying real estate assets associated with each unconsolidated joint venture in the same manner as all real estate assets, described above. The Company then calculated the net asset or liability value of each joint venture by applying the net working capital balance to the fair value of the real estate assets and the amount outstanding under any associated mortgage notes. The percentage of ownership interest in each joint venture was applied to the net asset or liability value which resulted in the fair value of each unconsolidated affiliate. See Note 2 for further information related to the equity method of accounting.

The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Effective Date. The Company used its incremental borrowing rate (“IBR”) as the discount rate in determining the present value of the remaining lease payments, which was determined by a third-party valuation advisor using a fundamental credit rating analysis and an implied market yield analysis based on the newly issued Secured Notes. Based upon the corresponding lease term, the IBR was approximately 12.0%.

The fair value of the mortgage notes payable was estimated by a third-party valuation advisor based on an analysis of the Company’s collateral coverage, financial metrics and interest rate for each mortgage note payable relative to market rates. If there is a reasonable expectation that the debtor will be able to meet the financial obligations of the mortgage note payable, or the mortgage note payable is a recourse loan, then the value of the mortgage note is equal to the present value of the future mortgage note payments discounted at a rate of return commensurate with the risk associated with the mortgage note payments. If the debtor is unable, or if there is uncertainty if the debtor will be able, to meet the financial obligations of the mortgage note, then the value of the mortgage note payable is equal to the expected proceeds to be received through a liquidation of the underlying property at fair value.

The adjustments included in the following fresh start consolidated balance sheet reflect the effects of the transactions contemplated by the Plan and executed by the Company on the Effective Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Accounting Adjustments”). The explanatory notes provide additional information regarding the adjustments recorded.


	October 31, 2021
	Predecessor			Reorganization Adjustments				Fresh Start Accounting Adjustments				Successor
ASSETS (1)
Real estate assets:
Land	$	625,098		$	—			$	(23,083	)	(15)	$	602,015
Buildings and improvements		4,839,923			—				(3,660,465	)	(15)		1,179,458
		5,465,021			—				(3,683,548	)			1,781,473
Accumulated depreciation		(2,252,275	)		—				2,252,275		(15)		—
		3,212,746			—				(1,431,273	)			1,781,473
Developments in progress		15,858			—				—				15,858
Net investment in real estate assets		3,228,604			—				(1,431,273	)			1,797,331
Cash and cash equivalents		498,260			(238,053	)	(1)		—				260,207
Receivables:
Tenant		70,664			—				(49,751	)	(16)		20,913
Other		4,056			1,254		(2)		—				5,310
Mortgage and other notes receivable		397			—				—				397
Investments in unconsolidated affiliates		246,823			—				(124,982	)	(17)		121,841
In-place leases, net		6,895			—				406,635		(18)		413,530
Above market leases, net		3,611			—				241,385		(18)		244,996
Intangible lease assets and other assets		150,784			—				(52,642	)	(19)		98,142
	$	4,210,094		$	(236,799	)		$	(1,010,628	)		$	2,962,667
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgage and other indebtedness, net	$	1,016,557		$	1,032,508		(3)	$	(370,446	)	(20)	$	1,678,619
10% senior secured notes - at fair value (carrying amount of $395,000 as of October 31, 2021)		—			395,000		(4)		—				395,000
Below market leases, net		5,576			—				153,667		(18)		159,243
Accounts payable and accrued liabilities		215,675			(7,431	)	(5)		(31,974	)	(21)		176,270
Total liabilities not subject to compromise (1)		1,237,808			1,420,077				(248,753	)			2,409,132

Liabilities subject to compromise		2,551,439			(2,551,439	)	(6)		—				—

Commitments and contingencies
Redeemable noncontrolling interests		(1,032	)		1,032		(7)		—				—
Shareholders' equity:
Successor common stock, $.001 par value, 200,000,000 shares authorized, 20,774,716 issued and outstanding in 2021		—		20			(8)		—				20
Predecessor preferred stock, $.01 par value, 15,000,000 shares authorized:
7.375% Series D Cumulative Redeemable Preferred Stock, 1,815,000 shares outstanding in 2020		18			(18	)	(9)		—				—
6.625% Series E Cumulative Redeemable Preferred Stock, 690,000 shares outstanding in 2020		7			(7	)	(10)		—				—


Predecessor common stock, $.01 par value, 350,000,000 shares authorized, 196,569,917 issued and outstanding in 2020		1,976			(1,976	)	(11)		—				—
Additional paid-in capital		1,986,769			487,721		(12)		(1,927,062	)	(22)		547,428
Retained earnings (dividends in excess of cumulative earnings)		(1,553,835	)		405,864		(13)		1,147,971		(22)		—
Total shareholders' equity		434,935			891,604				(779,091	)			547,448
Noncontrolling interests		(13,056	)		1,927		(14)		17,216		(23)		6,087
Total equity		421,879			893,531				(761,875	)			553,535
	$	4,210,094		$	(236,799	)		$	(1,010,628	)		$	2,962,667

(1)

The following summarizes the change in cash and cash equivalents:


Proceeds from exchangeable notes	$	50,000
Payment for the settlement to allowed unsecured claim holders		(98,801	)
Payment for the settlement of the Predecessor secured credit facility		(100,000	)
Payment of deferred financing fees for the exit credit agreement		(1,192	)
Payment of expensed financing fees for the exchangeable notes and the Secured Notes		(773	)
Payment of professional fees		(27,170	)
Redemption of Secured Notes		(60,117	)
	$	(238,053	)

(2)

Represents a receivable related to an overpayment of professional fees on the Effective Date.

(3)

The Plan’s reorganization adjustments in mortgage and other indebtedness, net, were as follows:


Issuance of exit credit agreement	$	883,700
Issuance of exchangeable notes		150,000
Capitalization of deferred financing costs related to the exit credit agreement		(1,192	)
	$	1,032,508

(4)

Represents the issuance of the $455,000 Secured Notes and the subsequent $60,000 redemption on the Secured Notes.

(5)

The decrease in accounts payable and accrued liabilities represents the write-off of an existing liability related to Predecessor preferred shares.

(6)

Represents the settlement of liabilities subject to compromise in accordance with the Plan as follows:


Liabilities subject to compromise	$	2,551,439
Issuance of exit credit agreement		(983,700	)
Issuance of Secured Notes		(555,773	)
Equity issued on the Effective Date in settlement of liabilities subject to compromise		(487,479	)
Payment to various creditors		(102,060	)
Gain on settlement of liabilities subject to compromise	$	422,427

(7)

Represents the cancellation of Predecessor redeemable noncontrolling interests.

(8)

Represents the issuance of Successor equity.

(9)

Represents the cancellation of Predecessor Series D Preferred Stock.

(10)

Represents the cancellation of Predecessor Series E Preferred Stock.

(11)

The net change in Predecessor common stock is due to:


Conversion of Predecessor equity	$	20
Cancellation of Predecessor common stock		(1,996	)
Net change in Predecessor common stock	$	(1,976	)

(12)

The following summarizes the change in additional paid-in capital:


Issuance of Successor common stock to creditors	$	487,462
Issuance of Successor common stock to Predecessor equity holders		(2	)
Cancellation of Predecessor common stock and preferred stock		2,021
Other adjustments		(1,760	)
	$	487,721

(13)

The following summarizes the change in dividends in excess of cumulative earnings:


Gain on settlement of liabilities subject to compromise	$	422,427
Payment of certain professional fees		(16,563	)
	$	405,864

(14)

Represents fresh start accounting adjustments to noncontrolling ownership interests.

(15)

Represents fair value adjustments to net investment in real estate assets.

(16)

Represents the elimination of Predecessor straight-line rent receivables.

(17)

Represents fair value adjustments to the Company’s investment in unconsolidated affiliates.

(18)

Represents the fair value adjustment to intangible lease assets.

(19)

The following summarizes the fair value adjustments, net, in intangible lease assets and other assets:


Intangible lease assets	$	(52,761	)
Corporate assets		293
Right-of-use lease assets		(174	)
	$	(52,642	)

(20)

Represents fair value adjustments of $373,542 related to property-level debt, as well as the write-off of $3,096 in unamortized property-level deferred financing costs.

(21)

The following summarizes the fair value adjustments, net, in accounts payable and accrued liabilities:


Investment in unconsolidated affiliates	$	(31,682	)
Write-off of deferred revenue		(91	)
Lease liabilities		(201	)
	$	(31,974	)

(22)

Represents the cumulative effect of fresh start accounting adjustments discussed herein, including additional paid-in capital of approximately $60,000 to Predecessor shareholders and common unitholders, and the elimination of the Predecessor accumulated deficit.

(23)

Represents fresh start accounting adjustments to noncontrolling ownership interests.